7 Most Important Questions to Ask Before Investing in Real Estate
There are more ways to invest in real estate than ever before. Each type of real estate investment delivers a different experience to the investor. Whether you choose to invest in REITs, debt syndications, equity syndications, private placement deals, residential or commercial real estate property, you’ll get different benefits out of each one. There are also different risks associated with each kind of real estate investment and varying levels of complexity with each type of transaction. Before you invest in real estate, it’s essential that you ask yourself the following questions.
What Are Your Investment Goals?
Everyone has a different reason for investing. Although the most commonly cited reason would be to acquire more money, this question to ask before you invest in real estate delves deeper into your investment goals. Do you want to generate monthly cash flow? A rental income property could offer you that. Are you looking for a high rate of return? You might consider a debt syndication investment. Are you seeking to build a family legacy for your heirs? The 1031 exchange makes that very possible. Do you need to diversify your investment portfolio? Certain real estate investments could do that for you. Or are you just looking for a long-term investment that builds wealth slowly over time? A number of real estate asset types could fit the bill. Figuring out what you want out of your investment will help you narrow down your options.
Do You Want A Passive Or Active Experience?
First, consider the type of person that you are and how much time you have to devote to your real estate investments. Would you prefer to have a passive or active experience? If you have a full-time job plus family and other responsibilities or interests, a passive investment experience may be the most practical for you. On the other hand, if you’re the type of person who likes to dive in and be heavily involved with every detail of a project, an active real estate investment experience may be a good fit for you.
What Kinds Of Resources Do You Have To Invest in Real Estate?
However you decide to invest in real estate, you should know as much as you can how about the investment. If you decide to do something like invest in single-family rentals, you might be looking at a market outside of where you live. Do you have the time and money and other resources to travel to that location, scout out neighborhoods, find a viable property, hire contractors and a property manager to take care of the renovations and everything else that’s needed to make it profitable? Before investing in real estate, take stock of your resources so you can make a practical decision based on your circumstances.
How Much Liquidity Do You Need?
If you have a limited amount of money to invest, consider the impact it will have on your liquidity position to tie up all that money in an investment. Is there a likelihood that you’ll need to cash out early and take a hit? If so, you might want to invest in real estate in a way that only ties up your money for a short period of time, such as debt syndication or even tax lien certificates. If liquidity is not a concern, then you have considerably more options.
What’s Your Risk Tolerance?
The answer to this question may be influenced by where are you are in life. Typically, financial experts say that if you’re younger you may be okay with higher risk investments. Older folks, who might be investing in retirement funds, may be better off with investments that have a lower risk. Your risk tolerance will also be impacted by your financial position. If you have a high paying job and a million dollars in the bank, you might safely invest in more complex investments such as private placement offers that are only available to accredited investors. Speak to your financial advisor to determine what your risk tolerance is.
What’s The Current Market Like?
The smart thing to do when you want to invest in real estate is to consider what the current market conditions are. Have you always dreamed of being a landlord? Before investing in a single home rental property, consider what the current economic situation is where you want to invest. It might make sense to put that strategy on the back burner until the economy better supports that investment type. Don’t try to go against the market. Instead, pay attention to market trends that favor one type of investment over another.
Who Will You Be Working With?
Carefully vet any company you are thinking of investing with. How long have they been in business and what kind of reputation do they have? Do they have a solid team of industry professionals running the day to day operations? Do they have strong financial backing? What’s their history of deals? What’s their success rate and how well do they handle obstacles? Your investment experience will be heavily influenced by the ease of communication, organization, and expertise of the company you partner with.
When you are ready to invest in real estate, it pays to ask savvy questions like these. Every type of real estate investor and every type of investment requires self-knowledge as well as due diligence. If you’re unsure of what kind of real estate investor are, or you’d like to better understand all the options available to you, contact American Real Estate Investments. One of our representatives will be more than happy to spend time with you to answer questions and help guide you toward the solution that’s best for you.